Bank Charters for Fintech Companies Top January Compliance News

Steven StachowiczBy Steven Stachowicz, Managing Director
Risk and Compliance

 

 

 

In December 2016, the Office of the Comptroller of the Currency (OCC), which oversees many of the largest banks in the country, released its plans to consider granting special-purpose national bank charters to a broad range of financial technology (fintech) companies, who are engaged in providing technology-driven financial products and services to consumers and small businesses. The idea is not without controversy as policy makers and industry participants alike debate the pros and cons of chartering such companies, and it raises important questions regarding the standards to which these companies will be held and the benefits to consumers such a move will provide.

The OCC plan tops the news in the January 2017 edition of Compliance Insights, and is highlighted there in further depth.

The products and services that fintech companies offer today rival many heavily regulated banking institutions, including in the areas of consumer and mortgage lending, payment services, financial planning and wealth management. Clearly, the OCC believes chartering these companies to be in the public interest, with the potential to both expand financial inclusion and empower customers to take more control of their finances. It is also an opportunity for the OCC to exert greater supervisory oversight of such companies, ensuring that they engage in safe and sound behaviors and treat consumers fairly, while also encouraging financial innovation.

The OCC makes clear that obtaining such a charter won’t be easy – fintechs will have to demonstrate sound business plans, appropriate risk management, and fundamentally strong financial strength and performance to meet the OCC’s high standards. As fintechs weigh the advantages of a charter against these costs, hardly anyone expects a rush of applicants in the short-term. However, with the proliferation of innovative technologies for financial products and services and increasing consumer adoption of these technologies, it is likely only a matter of time before you see the acronym “N.A.” (for “National Association”) at the end of the name of your favorite online consumer lender or payments provider.

In other compliance news:

  • The Consumer Financial Protection Bureau has released its semi-annual rulemaking agenda and announced its fair lending-specific priorities for 2017. Both announcements provide insights to the financial services industry regarding the agency’s rule-making and supervisory priorities in the upcoming year. Noteworthy items on the Fall 2016 rule-making agenda included arbitration, debt collection and integrated mortgage disclosures. In 2017, the CFPB will be targeting any potential redlining of minority neighborhoods, the role of race and ethnicity in mortgage and student loan workout options, and lending risks related to minority and women-owned small businesses.
  • The Financial Action Task Force (FATF) has published its first evaluation report since 2006. The international standards body, designed to develop and promote anti-money laundering and terrorist financing policies, gave the United States high marks, but identified several areas for improvement.
  • India’s effort to crack down on illegal cash holdings by voiding all 500 and 1,000 rupee notes has had the unintended consequence of digitizing the country’s illicit cash flow. The effort, which removed 86 percent of the country’s cash in circulation, has spawned money laundering networks and alternative money transfer systems. U.S. financial institutions should continue to pay close attention to this developing situation and monitor the potential money laundering risks to their institution.
  • And finally, the Federal Reserve Bank of New York is spearheading an effort to find alternatives to the London Interbank Offered Rate (LIBOR) in the wake of evidence that several banks had colluded to report rates favorable to their trading positions. A decision is expected later this year.

All of these issues are discussed in greater detail in the January 2017 edition of Compliance Insights. Links offering a deeper dive into each of the specific topics are also available.

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